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Issues facing Pension auto-enrolment

Thousands of small and medium-sized companies will struggle to meet their target dates for automatically enrolling their staff into pension schemes during 2015, experts have warned. More than 45,000 small businesses have their staging dates due in the next year, but representatives of law firm Irwin Mitchell and chartered accountants HW Fisher have both warned that a number will fall foul of the requirements.

Unveiled following recommendations from Lord Turner’s Pension Commission in 2008, auto-enrolment is the biggest shake up of the pensions market in a generation. With people living longer and saving less for their retirement, the initiative requires all UK employers to automatically enrol employees over the age of 22 into a pension plan if they are not already part of a workplace scheme.


One perceived benefit of auto enrolling those over the age of 22 would be to provision for those who may currently be struggling with finances. Recently dubbed ‘Generation Rent’ in research carried out by NatCen, those perhaps concentrating their finances on securing a deposit for a house may not be concerned with saving for their retirement. The study found that 21% of 20 – 45 year olds questioned were unable to get on the property ladder.


It was additionally found by Citizen’s Advice that young people under the age of 25 are more likely to turn to short term loans to assist with finances and dealing with debt. In this instance, automatic enrolment for employees with other financial burdens is promising to potentially alleviate money management issues upon retirement age. Staff members do not need to do anything (hence the auto part) as it is the duty of the employer to ensure that a plan is in place for them before a date set out by the Pensions Regulator.


The first enrolment began in October 2012 and in excess of three million people have started contributing to their pension since. However, of the 22,940 firms that were required to complete the process by May this year, just 15,099 have been confirmed as compliant. Speaking to, David Breger, pensions partner at HW Fisher, explained that many SMEs will find the process of auto-enrolment costly “in terms of time and money” during 2015. He added that SMEs also tend to find implementation difficult because they do not have in-house staff capable of understanding the “complexities” of the scheme. It is a view shared by Nigel Bolton, partner and head of pensions at Irwin Mitchell LLP. He described the legislation as being “extremely complex” but pointed out that a lack of suitable advisers means small firms will also struggle to find the support they need.


Companies which do not comply are issued with a statutory notice from the Pensions Regulator. Continued non-compliance will result in a fine of £400 as well as escalated penalties ranging from £50 to £10,000 per day depending on the number of staff the business has. Fines of up to £5,000 for individuals and £50,000 to companies can be levied against those that fail to maintain contributions to their employee’s pensions. While small businesses will be hit financially if they do not meet the requirements, the biggest losers will be their staff. The longer a pension scheme is left, the less time there will be to build up a sizeable pot, increasing the likelihood of a person not having enough saved to finance their retirement.


A large number of those already enrolled are likely to find the cost of giving up work difficult because they are simply not paying enough into their scheme. When reaching retirement age, few of us imagine our pension will not be enough to cover our outgoings. Key Retirement Solutions found that 20% of UK over-65s have found the need to lend or plan to lend to manage their cash flow. This has led to many pensioners turned to credit cards or personal loans acting as a stop gap. The same study also uncovered that a substantial number of under-65s have forecast they will enter retirement in debt.


According to Fidelity, the average person needs a pot of £650,000 to get a pension of just £15,000 a year on retirement. However, the average value of a scheme is currently just £40,000, giving an income of only £2,123.

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